HTC may not sustain sales growth into the third-quarter as the glow around the Taiwanese smartphone maker's flagship model is likely to be eclipsed by new products from bigger rivals Apple Inc and Samsung Electronics Co Ltd.
Strong sales of the latest version of the HTC One, as well as the colorful Butterfly range, boosted HTC's second-quarter net profit surged to T$1.25 billion ($41.63 million) from a record low in the previous quarter when a shortage of camera components delayed its product launch.
The profit figure, however, lagged forecasts and analysts said the sales growth was likely to be short-lived. Sales for the July-September quarter are expected to remain little changed from the previous quarter and few new products are in the pipeline.
The company has also cut back on component orders for the quarter, which traditionally sees higher sales, several analysts said. BNP Paribas, in a recent research note, said it expected overall third-quarter orders to remain flat from the second-quarter.
Analysts said the almost 25 percent drop in HTC's June sales compared to the same year-ago period also boded ill for the next quarter.
"The big drop on June sales likely proves the HTC One sales momentum slowdown and 3Q may be only flattish as is the market expectation," Goldman Sacks analyst Michael Shieh said.
Growth in sales for smartphone market leader Samsung Electronics has also started to wane. The South Korean firm missed already modest expectations for its quarterly earnings guidance, deepening worries that its smartphone business may have peaked.
HTC has embarked on a marketing campaign to boost its brand image, a strategy it said in May would squeeze operating margins for the rest of the year.
The company is expected to launch the One Mini phone, which features a 4.3-inch screen and is targeted at the mid-market, in August, a month before both heavyweights Samsung and Apple are likely to release new and upgraded offerings.
In addition to the intense competition, HTC has seen several executives leave the company this year, including Chief Product Officer Kouji Kodera. Company sources say the departures were related to a disappointing product launch and a 40 percent drop in total sales in 2012.
HTC was the world's 10th-biggest smartphone maker by shipments in the fourth quarter 2012, according to IT research firm Gartner, jostling in a crowded field behind Samsung and Apple.